What Timeshares, Debtors and Debt Collectors Have In Common

Many of us know someone who knows someone who got stuck with a timeshare in New Orleans. You know how it goes. Rekindled romance and one too many mojitos made the normally level-headed lovebirds decide that New Orleans was a great place to spend summer vacations. In the old days when you woke up from your hangover, you sheepishly paid off a mortgage and warned others against your folly. But today, you refuse to pay and instead bring a class action lawsuit when the debt collector comes calling. It would be amusing except these types of cases make borrowing more expensive for everyone.

Which brings me to the subject of today’s blog. A recent ruling by the Court of Appeals for the Second Circuit gave the court the opportunity to address an issue for the first time. The court held that the federal Fair Debt Collection Practices Act does not require debtors to contest their debts in writing after they receive notice from a debt collector of a past due debt. In Hooks v. Forman, Ms. Hooks and a friend were visiting Atlantic City in December of 2009 when they attended a presentation on vacation time shares sponsored by Windham Vacation Resorts. The presentation was apparently a good one because the plaintiffs agreed to purchase a time share. The plaintiffs subsequently explained that they didn’t realize that the document they had signed was a mortgage, which explains why neither of them made any required payments.

Eventually, Windham called in the debt collectors who sent the plaintiffs a notice explaining that unless they notified the debt collectors “in writing within 30 days after receipt of this letter” that the debt is disputed, the debt would be presumed valid. Here comes the issue of first impression, the plaintiffs sued in federal district court in New York stating that the notice violated the Act because debtors are not required to dispute a debt in writing. The trial court actually dismissed this claim; however, on appeal the circuit court not only reinstated the lawsuit but effectively held that the law in this area was so well settled that the defendants should have known they were violating the statute. The lawsuit was allowed to go forward. Incidentally, the Third Circuit, which has jurisdiction over New Jersey, reached the opposite conclusion in a previous lawsuit.

I understand times are tough and I am not advocating the return of debtors prison, but a huge cultural shift has taken place in this country. Not only has the stigma of delinquency faded away, but almost every day is replete with new examples of a court system and legal structure that views debtors as victims to be compensated. Whether its foreclosures, statutory exempt accounts, or debt collection, this cultural shift is ultimately in no one’s interest. Since when did the “can do” nation become the “can’t pay and don’t have to” nation?

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Timeshare fraud has been around since the timeshare idea was created, but they increase during poor economy. When times are difficult, timeshare owners are stuck with properties they can´t travel to or even afford. Desperate to recoup some money to pay for bills, they can easily become victims to scams artists pretending to be their timeshare salvation who will take upfront fees -as much as five number figures in some cases- but fail to fulfill their promise.

The first thing we have to understand is that timeshares are not investments, but a purchase that requires lots of expenses a year. The thing is that the timeshares salespeople use rhetoric as a massive weapon, bombarding the potential victims with lies and practically pushing them into getting a property.